Credit Bureaus in Canada: How Do They Work?
We know that Canada’s credit bureaus are Equifax and TransUnion and know that they keep our credit information. But, in general, we do not know more. So that you are as informed as possible about your credit, let’s take a look at how these agencies work, why they are so important and finally, how you can use their services to improve your financial life.
What is a credit bureau?
A credit bureau is a business that compiles information about how people manage their credit, their debts, their payment histories, and whether they repay their loans. Credit companies, lenders and banks provide credit reporting agencies with this information, then agencies create a credit report for each individual. A credit bureau will then provide this report to the person to whom it belongs or to a loan or credit provider. Credit files serve as a risk management tool to help determine a person’s creditworthiness. Credit bureaus charge consumers and credit and loan providers for the use of their services. These offices are not administered by the government but are still regulated by federal and provincial laws.
How do these agencies work?
Here is an overview of how these agencies collect and provide your personal credit information.
- Lenders and creditors report your credit habits to one or both credit reporting agencies.
- Credit agencies also collect information about your credit history from public records. This includes information about legal judgments, liens, insolvencies, bankruptcy, consumer proposals and debt management programs.
- Lenders and creditors do not have to report all your credit information to both agencies, usually a creditor will report to a single agency.
- Once a month, your credit activity is reported to the credit reporting agencies and your credit report is updated or created.
Be aware that credit bureaus rely on information provided to them; if they accidentally report false information, they assume no responsibility. But of course, you can go through the error challenge process to see the error corrected.
- Once credit is used and a credit report is opened in your name, other potential creditors and lenders can now request to see your credit report.
- This is how your creditworthiness is calculated. In other words, credit bureaus collect consumer information from lenders and creditors, create a report and then provide that information to other lenders or creditors themselves to help determine if they can give you a new loan credit.
What services do these offices offer?
As noted above, credit bureaus provide consumers, lenders and creditors with credit reports, a file containing information about a person’s habits and credit history. Apart from that, they also offer other credit information tools and services.
Credit rating. This is a 3-digit number that is created based on your credit report. Credit agencies create this number to help lenders and creditors decide whether or not they can provide you with new credit. This number is based on 5 main components: payment history, total debt, credit duration, account diversity and new inquiries.
Credit monitoring. The two credit reporting agencies provide consumers with a credit monitoring service. This service allows a consumer to access his credit report and credit rating, usually via an online account. Consumers can keep an eye on identity theft or errors and receive alerts when information is changed in their credit report.
How can a credit agency help you?
It is fair to say that the majority of your financial life revolves around your credit history and credit score. Credit bureaus can provide you with the information you need to keep your finances on track, build your credit rating and even rectify past financial mistakes. Credit records, credit ratings and credit monitoring services are all provided by the credit bureaus. If you are looking to build your credit, these are the tools you need. This can help you find errors and determine which aspects of your credit need to be improved.